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Case-Shiller: U.S. Home Prices Wrapped Up 2011 At Fresh Lows

Only one city in the S&P/Case-Shiller 20-city index of home prices showed an annual gain last year, and it was not one you would expect.

Detroit was up 0.5% in December compared with the same month in 2010, while cities like Atlanta, Las Vegas, Seattle and Tampa all made fresh lows as the 20-city index dropped 4% from a year earlier. The 10-city and national composite were 3.9% and 4% from the fourth quarter of 2010.

The worst performer for the year was Atlanta, where prices dropped 12.8% from a year earlier, while Dallas was the only city other than Detroit to even sniff a gain, falling 0.4%. In terms of momentum, Detroit actually saw the biggest decline from November to December, down 3.8%, while prices in Phoenix managed to climb 0.8% from a month earlier and Miami prices inched up 0.2%. (Read the full report here.)

“In terms of pricing, the housing market ended 2011 on a very disappointing note, said David Blitzer, Chairman of the Index Committee at S&P Indices.”While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.”

Since the plunge in housing prices began in 2006 the market has endured a three-year stretch of rapid declines and two years of a market “that is bottoming out but has not yet stabilized,” Blitzer said. “Up until today’s report we had believed the crisis lows for the composites were behind us.”

While Tuesday’s report shows clear evidence of a housing market still under stress, it is a bit like looking in the rearview mirror. More recent indicators, including Monday’s improved pending home sales figure, suggest that a recovery is underway, albeit a modest one. Meanwhile the broader economy shows signs of firming up, with better consumer sentiment figures and improving labor data. One hurdle for the market is high prices at the pump, with crude oil jumping well over $100 per barrel and bringing gasoline back toward $4 per gallon.

Many investors have been positioning themselves for better days ahead for housing. Builders rallied early in the year, with names like Toll Brothers and D.R. Horton up better than 10% for the year, while housing-related plays like retailers Home Depot and Lowe’s were a bit slower out of the gate but have picked up steam more recently.

Warren Buffett discussed a housing rebound in his recent Berkshire Hathaway shareholder letter. The billionaire acknowledged that he was “dead wrong” last year when he said the recovery would be underway within a year and the five Berkshire businesses with close ties to construction activity have borne the brunt of that.

Buffett still believes though. “Housing will come back – you can be sure of that,” he wrote, noting the unsustainable supply and demand trend building due to the steep falloff in construction in the wake of the housing bubble:

Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while “doubling-up” may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.

At our current annual pace of 600,000 housing starts – considerably less than the number of new households being formed – buyers and renters are sopping up what’s left of the old oversupply. (This process will run its course at different rates around the country; the supply-demand situation varies widely by locale.) While this healing takes place, however, our housing-related companies sputter, employing only 43,315 people compared to 58,769 in 2006. This hugely important sector of the economy, which includes not only construction but everything that feeds off of it, remains in a depression of its own. I believe this is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.

Tuesday morning’s price number would seem like yet another big negative for the market, and it seems likely that a true housing recovery of the type Buffett discussed will have to wait at least until 2013, or perhaps 2014. It is worth remembering though, that residential construction has been a drag on U.S. growth for years now. If it can go to being neutral ,or even a slight positive, that could have a big impact sooner than the naysayers expect.

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I purchased my home six years ago in May. I thought I got a pretty good deal at $210,000. Similar recently sold homes in my town have gone for $65,000.

Two things infuriate me; That the people that caused the housing crisis are wealthy, living it up, and FREE and that my real estate taxes have gone up one hundred percent since I bought my home. Try to appeal that with Crook County and see how fast you are shown the door.

I truly hope that Mr. Buffett’s expectations come true, but even if home prices double in the next ten years, I will still be looking at a $130,000 property for which I paid $210,000 (and no doubt my real estate taxes would have tripled by then).

If someone wants to purchase a house, and he can purchase it at a cheaper price than he would have been obliged to pay some three years past what is the problem with that? I guess I will have to add ignorance to my shortcomings.

The problem is that the person selling that house is getting less than they would have three years ago. That isn’t the buyer’s problem, but it has consequences beyond the housing market since people who are underwater on their mortgages are under financial pressure. Multiply that by thousands or millions of households and you have a pretty big overhang on the broader economy’s recovery.

Fair point Larry, though it’s something of a generalization. There are probably plenty of folks who didn’t see their home as a growth investment, just as a place to live. They bought at the going rate in the neighborhood they wanted to live in and were convinced (either by themselves or by their lender) that if anything bad happened they could always refinance. If buyers keep holding the line on pricing and sellers give in to those terms, it could be a driving force in the eventual housing recovery.

Dteve: Here why Case-Schiller is NOT worthy of being quoted as legitimate research into housing prices. In the day of internet access to instant communication and research, to quote Dec Case-Shiller information on Feb 28, 2012 is as outdated infomation as you can find.

For example, the sales for Jan 2012 in Las Vegas, 4000+ SFR houses, was the highest in 10 years and the median price index reported by Altos Resaerch dated Feb 27, 2012 REPEAT Feb 27, 2012 shows a dramitic uptick in Las Vegas Median Sales Prices. Seriously, why quote 2 month OLD numbers, when you could and should be current

Steve, with all these stats thrown around I wonder if anyone thinks that there are people who meet the following criteria and how many: 1. People who really WANT to stay in their home 2. People who have been paying their mortgage but struggling to do so ( no more than 1x 30 days late) 3. People think they have reason to believe they will be ok in 5 years as the economy and housing market is certainly at least very likely to be much better than today.

Why not push the GSE’s and their insured lenders to do the following for these people: 1) Lower 1st mortgage balances to the level of affordability to these borrowers; 2) Place a “soft-second” with no payments, no or very low interest and a 5 year balloon; 3) Guarantee to refinance those borrowers if they make ALL payments on time; 4) Any losses on the “soft-seconds” shared between the lender, insurer and federal government (which will actually cost taxpayers much less than any of the bailouts)

This will dramatically reduce inventory, stabillize neighborhoods, change the attitude of real people who matter and clear the way for new foreclosures that are simple inevitable.

I proposed more details here: http://203kexperts.com/4-steps-to-moving-3-million-reo-properties-using-203k-tools/